California-Based Apple Uses Irish Subsidiary to Dodge Billions in Taxes

Wednesday, May 22, 2013

Apple Corporation CEO Tim Cook told skeptical congressional lawmakers yesterday that his company “pays all the taxes we owe—every single dollar,” which may be true, but probably won’t mollify critics who question why the company paid less than one-twentieth of 1% in taxes on billions of dollars of income.

The Cupertino-based company was the third-largest corporate taxpayer in the U.S. last year, but, according to Senator John McCain (R-Arizona) “is also among America’s largest tax avoiders.”

Cook appeared before the Senate Permanent Subcommittee on Investigations, chaired by Senator Carl Levin (D-Michigan), after congressional investigators released a report outlining Apple’s complex tax avoidance strategy that shifted at least $74 billion overseas between 2009 and 2012.

Using a web of overseas subsidiaries, particularly in Ireland, Apple went beyond the common multi-national corporation practice of stashing money in low-tax offshore havens to obtain, in the words of Senator Levin, “the Holy Grail of tax avoidance.” 

“It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere,” he said.

Apple is hardly alone in seeking tax havens and avoiding taxes altogether. Bloomberg cites an assessment by Reed University economics professor Kimberly Clausing that U.S. and European multinational companies avoid paying $100 billion a year in taxes by shifting their profits around.

The California Public Interest Research Group’s Education Fund (CALPIRG) calculated that offshore tax havens diverted $39.8 billion from state coffers across the nation in 2011, led by California’s loss of $7.1 billion. CALPIRG put losses to the federal treasury at $150 billion.

Apple created Apple Operations International in Ireland, where the government bases its tax system on where a company manages its affairs. In the case of Apple, that would be the United States, where it keeps its accounts and holds board meetings. The U.S., on the other hand, bases its tax system on where a company is incorporated, which in this case would be Ireland.

Presto, Change-O, Apple profits magically disappear from the tax ledgers of both nations. Apple Operations International, a shell company with no employees, has not filed a tax return anywhere for the last five years despite income of $30 billion. Another “Irish company,” Apple Sales International, reportedly paid $21 million in taxes on $38 billion in earnings for an effective rate of  .06%.

As of March 30, Apple was sitting on $145 billion in cash and most of it, $102.3 billion, was stashed overseas, according to the Securities and Exchange Commission (SEC).

Cook argued that Apple really, really wants to pay its fair share of taxes, but the U.S. tax system is so screwed up the company can’t help but take advantage of it. He argued for a simplification of the tax code that would lower corporate taxes to 25%, and made a pitch for a single-digit tax on foreign income.

He did not promise that such an adjustment would dissuade multi-national companies from continuing to game the system.

–Ken Broder 


To Learn More:

Apple's Tax Ingenuity a Tough Sell for Senate Critics (by Kevin McCoy, USA Today)

Google Joins Apple Avoiding Taxes With Stateless Income (by Jesse Drucker, Bloomberg)

Apple's Tax Dodge Is So Genius There Should be an App for That (by Steve Lopez, Los Angeles Times)

Apple’s Web of Tax Shelters Saved It Billions, Panel Finds (by Nelson D. Schwartz and Charles Duhigg, New York Times)

Offshore Tax Dodges that Cost California $7.1 Billion Seem Off Limits to Reform (by Ken Broder, AllGov California)

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